Singapore Exchange in talks to buy London's Baltic Exchange

A businessman passes the Baltic Exchange in London, U.K., on Wednesday, June 16, 2010.

The Singapore Exchange (SGX) is in exclusive talks to buy London's Baltic Exchange, which has been at the heart of the global shipping industry for centuries, the two companies said on Wednesday.

Founded in 1744, the Baltic Exchange is no longer a forum for chartering vessels but owns benchmark indexes for global shipping rates and provides a trading platform for the multi-billion dollar freight derivatives market.

The takeover talks come as the global shipping industry grapples with the worst market conditions for decades after a slump in commodity markets coincided with an increase in the number of vessels, sending freight costs to record lows.

Earlier on Wednesday, sources told Reuters the Baltic and SGX had entered into advanced talks, with one putting the value of a potential deal at about $100 million.

The Baltic and SGX said in a statement later they had entered a period of exclusivity which would expire on June 30.

A purchase by SGX, which has a market value of $5.9 billion, would boost new Chief Executive Loh Boon Chye's plans to diversify its revenue streams at a time when it has been hit by sluggish equity listings and securities volumes.

"Additionally, Singapore's ambition to be a global maritime hub further reinforces SGX's view of trying to do this transaction," Loh told Reuters.

SGX sees huge long-term potential for freight derivatives and clearing and has launched new products to increase the appeal of its Asian pricing benchmarks for commodities such as iron ore, liquefied natural gas and coking coal.

Baltic Chairman Guy Campbell said in a statement: "The board considers this proposal is an exciting development for the Baltic and all the stakeholders in the markets it serves."

"SGX has indicated that in the event its bid is successful, it would maintain the current model for the Baltic business and our presence and building in London, as the platform for the Baltic's future growth."

The Baltic is owned by about 380 shareholders, many from the shipping industry. It produces daily benchmark rates and indexes used around the world to trade and settle freight contracts.

The Baltic said it would hold joint meetings with the SGX, shareholders and wider members in the coming weeks to explain the terms of the proposal before presenting an agreement which could form the basis of a recommendation to shareholders.

Campbell said it had already spoken with a couple of stakeholders, and the feedback had been "very supportive and positive."

"I am very optimistic we will have a proposal to make to shareholders," Campbell told Reuters. "We are doing it with the intention of a successful outcome."

SGX said there was no assurance of an agreement.

In February, the Baltic confirmed it had received a number of "exploratory approaches" after SGX said it was seeking to buy it.

The London Metal Exchange, CME Group, ICE, state-run conglomerate China Merchants Group and Platts were among other potential bidders, sources told Reuters previously.